PROSPECTUS
Dated March 29, 1999
The Hughes Value Fund
(the "Fund")
A Portfolio of Hughes Funds, Inc.
The Fund's investment objective is to achieve capital growth. The Fund is
offered by Hughes Funds, Inc. (the "Company"), an open-end, diversified
management investment company.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
TABLE OF CONTENTS
Risk/Return Summary
Fees And Expenses
Investment Objectives And Policies
Investing In The Fund
How To Sell (Redeem) Shares
Dividends and Distributions
Management of the Fund
Federal Taxes
General Information
Distribution Fees
Financial Highlights
RISK/RETURN SUMMARY
Investment Objective
The Fund is a diversified mutual fund whose primary investment objective is
growth of capital.
Principal Investment Strategies
The Fund will seek to achieve its objective by primarily investing in a
diversified group of common stocks and securities convertible into common
stocks. The companies in which the Fund invests will represent a broad range of
market capitalizations, from a low of $100 million in market capitalization to
very large, multi-national corporations (in excess of $1Billion in market
capitalization).
Under normal market conditions, the Fund will invest at least 25% of its net
assets in stocks of national and state-chartered banks, thrifts, the holding or
parent companies of such institutions, and insurance companies ("Financial
Services Companies"). The Fund may also invest in savings accounts of mutual
thrifts. Mutual Thrifts are smaller savings and loan companies that offer
special savings accounts to shareholders. These special accounts have a
conversion feature that allows the account holder to convert the account into
shares of common stock of the thrift if the thrift offers such shares to the
public. Investing in such accounts may entitle the Fund to participate in
future stock conversions of the mutual thrifts.
In choosing common stocks for the Fund's portfolio, the Advisor conducts
extensive fundamental security analysis to develop earnings forecasts and to
identify attractive investment opportunities relative to market valuation.
Individual companies are scrutinized concerning their individual growth
prospects and their competitive positions within their respective industries.
Individual company analysis focuses upon the outlook for sales, profit margins,
returns on capital, cash flow and earnings per share.
The Fund intends to invest in Financial Services Companies and other publicly
traded companies with an established record of earnings and dividends,
reasonable return on equity, and sound finances. The Fund may also, from time
to time, invest in securities that pay no dividends or interest if, in the
Advisor's opinion, such an investment would be beneficial to the Fund and is
appropriate under the Advisor's screening criteria.
The Advisor generally follows a value-oriented investment approach to the
selection of individual securities. Value investing refers to the process by
which an investment professional chooses certain stocks because that
professional believes that they are undervalued in the marketplace. The initial
criteria for stock selection utilizes a stock's Price/Earnings Ratio ("P/E"). A
low P/E value is important because, in the opinion of the Advisor, it tends to
be a historic indicator of undervaluation. The second criteria considered is
the price-to-book ratio. The Advisor concentrates on stocks whose market price
is low in relation to book value. Further quantitative analysis of these stocks
focuses on adequate trading liquidity, measuring financial strength, and testing
earnings against certain requirements.
The Advisor believes that its approach to stock selection is conservative in
nature and only companies that possess strong financial characteristics will be
considered for investment. The Advisor closely analyzes the stocks and favors
those that have shown above average growth on both a three-, five- and ten-year
basis, exhibit sound finances and demonstrate above-average long term earnings
prospects. The Fund may diversify its holdings among many different companies
and industries which meet the Advisor's criteria for growth.
Investment Rationale
In the Advisor's opinion, investing in a diversified portfolio of common stocks,
with a concentration in Financial Services Companies, has historically provided
a conservative portfolio of investments with above-average capital growth
potential. Financial Service Companies, as defined in this prospectus, and
other value-oriented companies are, in the Advisor's opinion, an excellent
source of long-term growth potential. Of course, you should be aware that past
performance of these companies is not necessarily an indication of how they will
perform in the future.
Principal Risks
The Fund invests primarily in common stock, so the Fund will be subject to the
risks associated with common stocks, including price volatility and the
creditworthiness of the issuing company. The stock market trades in a cyclical
price pattern, with prices generally rising or falling over time. These
cyclical periods may last for a significant period of time. Therefore, you may
lose money by investing in the Fund
Because the Fund will normally invest at least 25% of its average net assets in
Financial Services Companies, the Fund may be subject to greater risk than the
shares of a fund whose portfolio is more diversified. Financial Services
Companies are regulated at both the state and federal levels. Accordingly, the
Fund may be subject to additional risks resulting from changes in the laws of
the states or the United States that negatively affect the performance of these
companies.
The Fund invests in small-cap companies (less than $500 million in market
capitalization). These companies are relatively smaller, engaged in business
mostly within their own geographic region, and may be less well-known to the
investment community. Because the Fund invests in small-cap companies, price
risk may be increased. Smaller, newer companies have more volatile share prices
for several reasons. Small companies often have less liquidity, less management
depth, narrower market penetrations, less diverse product lines, and fewer
resources than larger companies. As a result, their stock prices react more
violently to changes in the marketplace.
The Fund is appropriate for investors who want capital appreciation and are
willing to accept moderate amounts of volatility and risk.
FEES AND EXPENSES
This table describes the fees and expenses you may pay if you buy and hold
shares of the Fund.
Shareholder Fees: Class A Class C No-Load
(fees paid directly from your investment)
1. Maximum Sales Charges
Imposed on Purchases 3.75% NONE NONE
(as a percentage of offering price)
2. Maximum Deferred Sales Charges NONE NONE NONE
(as a percentage of offering price)
3. Maximum Sales Charges Imposed
On Reinvested Dividends NONE NONE NONE
(as a percentage of net asset value)
4. Redemption Fees NONE NONE NONE
(as a percentage of amount redeemed)
5. Exchange Fees NONE NONE NONE
Annual Fund Operating Expenses:
(expenses that are deducted from Fund assets) Class A Class C No-Load
Management Fees(1) 1.00% 1.00% 1.00%
12b-1 Fees(2) 0.25% 1.00%(3) 0.25%
Other Expenses(4) 0.05% 0.05% 0.05%
------- ------- -------
Total Annual Fund Operating Expenses 1.30% 2.05% 1.30%
1. The Advisor has voluntarily agreed to waive its advisory fee and/or to
reimburse the Fund, if necessary, if the advisory fee or expenses would cause
the Total Fund Operating expenses to exceed 1.25% for the Class A or No-Load
Class Shares and 2.00% for the Class C shares. The Advisor may revise or cancel
these expense limitations at any time and will notify you by letter not less
than 30 days prior to any such change.
2. You should be aware that if you hold your shares for a substantial period of
time, you may indirectly pay more than the economic equivalent of the maximum
front-end sales charge allowed by the National Association of Securities Dealers
due to the recurring nature of Distribution (12b-1) fees.
3. Includes a fee of 0.75% for distribution-related expenses and 0.25% for
shareholder service expenses.
4. Because the Fund has not yet completed its first year of investment
operations, "Other Expenses" are estimated.
Example: This example is intended to help you compare the costs of investing in
the Fund with the costs of investing in other mutual funds.
The Example below assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all your shares at the end of those periods.
The Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses that were described above remain the same.
Although your actual costs may be higher or lower, based on these assumptions,
your costs would be:
Time Period Class A Class C No-Load
One Year $502 $208 $132
Three Years $771 $663 $412
Because the Fund does not charge a redemption fee, you would pay the same fees
set forth above even if you did not redeem your shares.
Because the Fund has not yet completed its first fiscal year, performance
information, including bar charts and performance graphs, are not included.
Such information will be included in the Fund's annual update.
INVESTMENT OBJECTIVES AND POLICIES
Information concerning the Fund's principal investment objectives and strategies
is set forth in the Risk/Return Summary above. What follows is additional
information concerning how the Fund invests and what kind of other securities
the Fund may invest in. If the risks of investing in certain kinds of
securities have not already been discussed, the risks of those securities is
also set forth in this Section.
The Advisor will allocate Fund assets among securities of particular issuers and
industry groups, based on the Advisor's analysis as to the best values currently
available in the marketplace. Elements included in that analysis are, by way of
example, a company's price value relative to its industry peers, its history of
dividend payments and capital growth, its ability to show strong and consistent
capital growth over the long term, and other technical and fundamental
analytical factors. The Advisor will, based on the its analysis, purchase
securities that appear to be undervalued in relation to the long-term earning
power or asset value of their issuers. Consistent earnings growth is also an
important factor.
The Fund is a diversified Fund, meaning that the Fund limits the amount of its
assets invested in any one issuer and/or in any one industry, thereby reducing
the risk of loss incurred by that issuer or industry. The Fund may invest in
the following securities.
Common Stock
The Fund seeks to realize capital appreciation by investing in a diversified
portfolio of common stocks that are, in the Advisor's opinion, undervalued in
the market. The market values of common stock can fluctuate significantly,
reflecting the business performance of the issuing company, investor perception
and general economic or financial market movements. Smaller companies are
especially sensitive to these factors.
Short Sales
The Fund may attempt to limit the Fund's exposure to a possible decline in the
market value of portfolio securities through short sales of securities. The Fund
also may use short sales in an attempt to realize gain. To effect a short sale,
the Fund borrows a security from a brokerage firm to make delivery to the buyer.
The Fund then is obligated to replace the borrowed security by purchasing it at
the market price at the time of replacement. Until the security is replaced, the
Fund is required to pay the lender any accrued interest or dividends and may be
required to pay a premium.
No short sale will be effected which will, at the time of making such short sale
transaction, cause the aggregate market value of all securities sold short to
exceed 10% of the value of the Fund's net assets. To secure the Fund's
obligation to replace any borrowed security, it will place in a segregated
account, an amount of cash or liquid securities, at such a level that (i) the
amount deposited in the account plus the amount deposited with the broker as
collateral will equal the current value of the security sold short and (ii) the
amount deposited in the segregated account plus the amount deposited with the
broker as collateral will not be less than the market value of the security at
the time it was sold short; or otherwise cover its short position in accordance
with positions taken by the SEC.
In addition to the short sales discussed above, the Fund may also make short
sales "against the box", i.e., short sales made when the Fund owns securities
identical to those sold short. The Fund may only engage in short sale
transactions in securities listed on one or more national securities exchange or
on NASDAQ.
Risks of Short Selling
The Fund will realize a gain if the security declines in price between the date
of the short sale and the date on which the Fund replaces the borrowed security.
The Fund will incur a loss if the price of the security increases between those
dates. The amount of any gain will be decreased, and the amount of any loss
increased, by the amount of any premium or interest the Fund may be required to
pay in connection with a short sale. A short position may be adversely affected
by imperfect correlation between movements in the price of the security sold
short and the securities being hedged.
Futures and Options On Securities
The Fund may purchase futures contracts relating to equity, debt and index
securities, write (i.e. sell) covered put and call options, and purchase put and
call options, on equity, debt and index securities. The Fund intends to use
futures and options transactions to decrease its exposure to the effects of
changes in security prices, to hedge securities held, to maintain cash reserves
while remaining fully invested, to facilitate trading, to reduce transaction
costs, and to seek higher investment returns when a futures or options contract
is priced more attractively than the underlying security or index.
Risk Factors. The primary risks associated with the use of options and futures
are; (1) imperfect correlation between a change in the value of the underlying
security or index and a change in the price of the option or futures contract,
(2) the possible lack of a liquid secondary market for an options or futures
contract and the resulting inability of the Fund to close out the position prior
to the maturity date, (3) the losses possible of investing in futures
transactions are potentially unlimited, and (4) gains and losses on investments
depend upon the portfolio manager's ability to predict correctly, the directions
of stock prices, interest rate, and other economic factors. The risk of
imperfect correlation will be minimized by investing only in those contracts
whose price fluctuations are expected to resemble those of the Fund's underlying
securities. The risk that the Fund will be unable to close out a position will
be minimized by entering into such transactions only on national exchanges and
over-the-counter markets with an active and liquid secondary market.
Preferred Stock
The Fund may invest in preferred stock. Preferred stock generally pays dividends
at a specified rate and generally has preference over common stock in the
payments of dividends and the liquidation of the issuer's assets. Dividends on
preferred stock are generally payable at the discretion of the issuer's board of
directors. Accordingly, Shareholders may suffer a loss of value if dividends are
not paid. The market prices of preferred stocks are also sensitive to changes in
interest rates and in the issuer's creditworthiness. Accordingly, shareholders
may experience a loss of value due to adverse interest rate movements or a
decline in the issuer's credit rating.
Foreign Securities
The Fund may invest in securities of foreign issuers which are publicly traded
on U.S. exchanges either directly or in the form of American Depository Receipts
(ADRs). The Fund will only invest in ADRs that are issuer sponsored. Sponsored
ADRs typically are issued by a U.S. bank or trust company and evidence ownership
of underlying securities issued by a foreign corporation.
Risk Factors of Foreign Securities
Investments in foreign securities involve greater risks compared to domestic
investments. Foreign companies are not subject to the regulatory requirements of
U.S. companies and, as such, there may be less publicly available information
about issuers than is available in the reports and ratings published about
companies in the U.S. Additionally, foreign companies are not subject to
uniform accounting, auditing and financial reporting standards. Dividends and
interest on foreign securities may be subject to foreign withholding taxes. Such
taxes may reduce the net return to shareholders. Further, foreign securities are
often denominated in a currency other than the U.S. dollar. Accordingly, the
Fund will be subject to the risks associated with fluctuations in currency
values. Although the Fund intends to invest in securities of foreign issuers
domiciled in nations which the Advisor considers as having stable and friendly
governments, there is the possibility of expropriation, confiscation, taxation,
currency blockage or political or social instability which could affect
investments of foreign issuers domiciled in such nations.
Real Estate Investment Trusts
The Fund may invest in real estate investment trusts (REITs). Equity REITs
invest directly in real property while mortgage REITs invest in mortgages on
real property.
Risks Associated with REITS
REITs may be subject to certain risks associated with the direct ownership of
real estate including declines in the value of real estate, risks related to
general and local economic conditions, overbuilding and increased competition,
increases in property taxes and operating expenses, and variations in rental
income. REITs pay dividends to their shareholders based upon available funds
from operations. It is quite common for these dividends to exceed the REITs
taxable earnings and profits resulting in the excess portion of such dividends
being designated as a return of capital. The Fund intends to include the gross
dividends from such REITs in its distribution to its shareholders and,
accordingly, a portion of the Fund's distributions may also be designated as a
return of capital.
Money Market Funds
The Fund may invest in securities issued by other registered investment
companies that invest in short-term debt securities (i.e., money market fund).
As a shareholder of another registered investment company, the Fund would bear
its pro rata portion of that company's advisory fees and other expenses. Such
fees and expenses will be borne indirectly by the Fund's shareholders. The Fund
may invest in such instruments to the extent that such investments do not exceed
10% of the Funds net assets and/or 3% of any one investment company's
outstanding securities.
Restricted And Illiquid Securities
The Fund will not invest more than 15% of its net assets in securities that the
Advisor determines, under the supervision of the Board of Directors, to be
illiquid and/or restricted. Illiquid securities may be difficult to sell
promptly at an acceptable price because of lack of available market and other
factors. The sale of some illiquid and other types of securities may be subject
to legal restrictions.
When-Issued Securities And Delayed-Delivery Transactions
The Fund may purchase securities on a when-issued basis, and it may purchase or
sell securities for delayed-delivery. These transactions occur when securities
are purchased or sold by the Fund with payment and delivery taking place at some
future date. The Fund may enter into such transactions when, in the Advisor's
opinion, doing so may secure an advantageous yield and/or price to the Fund that
might otherwise be unavailable. The Fund has not established any limit on the
percentage of assets it may commit to such transactions, but to minimize the
risks of entering into these transactions, the Fund will maintain a segregated
account with its Custodian consisting of cash, cash equivalents, U.S. Government
Securities or other high-grade liquid debt securities, denominated in U.S.
dollars or non-U.S. currencies, in an amount equal to the aggregate fair market
value of its commitments to such transactions.
Money Market Instruments
The Fund may invest in "money market instruments," a term that includes, among
other things, bank obligations (which include U.S. Dollar denominated
certificates of deposit, bankers acceptances and time deposits issued or
supported by the credit of U.S. or foreign banks or savings institutions having
total assets at the time of purchase in excess of $1 billion), commercial paper,
obligations of the U.S. Government, its agencies and instrumentalities, and
repurchase agreements backed by U.S. Government securities, and cash. For
temporary defensive purposes, the Fund may invest up to 100% of its total assets
in money market instruments. To the extent and for the time period that the Fund
is invested in temporary defensive instruments, it will not be pursuing its
investment objective.
Risks of Money Market Instruments
Money Market Instruments are generally fixed-income debt instruments.
Accordingly, the primary risks involved in these securities is interest rate
risk and credit risk. Interest Rate risk is the risk to the value of an
instrument due to changes in the overall rates of interest. Debt instrument
prices generally fall when interest rates rise. In addition, the longer a
security has until it matures, the more severely its price will decline for any
given change in interest rates. Credit risk is the risk to the value of a
security due to changes in the creditworthiness of the issuing entity. The
value of a security may decline if the credit rating of the issuing entity
declines. To minimize interest rate risk to the Fund, the Fund will only invest
in securities with a remaining maturity of not greater than 397 days. To
minimize credit rate risk, the Fund will only invest in securities rate "A" or
better by Standard & Poors, or an equivalent rating by another nationally
recognized rating agency.
A complete listing of the Fund's investment restrictions, including those that
may be changed only by a vote of the Fund's shareholders, may be found in the
Statement of Additional Information ("SAI") for the Fund.
INVESTING IN THE FUND
Determination of Share Price
Shares of the Fund are offered at the public offering price for each share
class. The public offering price for Class A, Class C and No-Load shares of the
Fund is based upon the Fund's net asset value per share. Net asset value per
share is calculated by adding the value of Fund investments, cash and other
assets, subtracting Fund liabilities, and then dividing the result by the number
of shares outstanding. The assets of the Fund are valued at market value or, if
market quotes cannot be readily obtained, fair value is used as determined by
the Board of Directors.
The net asset value of the Fund's shares is computed on all days on which the
New York Stock Exchange is open for business at the close of regular trading
hours on the Exchange, currently 4:00 p.m. East Coast time. The public offering
price for Class A shares is the NAV plus a maximum sales charge of 3.75% of your
investment.
You should be aware that the Fund may invest in foreign securities. Foreign
securities sometimes trade on exchanges that are open on days when the new York
Stock Exchange is closed. Accordingly, when the Fund is investing in such
securities, the NAV on your shares could change on days when you cannot purchase
or redeem shares.
Opening and Adding To Your Account
You can invest directly in the Fund in a number of ways. Simply choose the one
that is most convenient for you. Any questions you may have can be answered by
calling 1-800-446-2987. You may also purchase Fund shares through broker-dealers
or other financial organizations.
Payments for Fund shares should be in U.S. dollars, and in order to avoid fees
and delays, should be drawn on a U.S. bank. Please remember that Fund
management reserves the right to reject any purchase order for Fund shares if,
in the Fund's opinion, such an order would cause a material detriment to
existing shareholders. Your purchase of Fund shares is subject to the following
minimum investment amounts:
Minimum Investment To Open Account Additional Investments
Class A Shares
Regular Account $2,500 $1000
IRAs $1,000 $500
Class C Shares
Regular Account $2,500 $1000
IRAs $1,000 $500
No-Load Shares
Regular Accounts $5,000 $1000
IRAs $1,000 $500
TO OPEN AN ACCOUNT TO ADD TO ACCOUNT
By Mail
Complete an Account Make your check payable to
Registration Form, make The Hughes Value Fund and
a check payable to The mail it to the address at left.
Hughes Value Fund
and mail the Form and check
to Hughes Funds, Inc. Please include your account
c/o Mutual Shareholder number on your check.
Services, 1301 East Ninth Or use the convenient form
Street,Suite 3600,Cleveland, attached to your regular
OH 44114. Fund statement.
By Wire
Ask your bank to wire funds Ask your bank to wire
to Account of available funds to the location described
Fifth Third Bank, N.A. at the left, except that the wire should
ABA#: note that it is to make a subsequent
Credit: Hughes Funds, Inc. purchase rather than to open
Account #: a new account.
Further credit: The Hughes
Value Fund.
The wire should state that the Include your name and Fund
purchase is to be in your account number.
name(s).
The wire should state that you
are opening a new Fund account.
Include your name(s), address and
taxpayer identification number or
Social Security number and the name
of the Fund in which you are
purchasing shares.
Call 1-800-446-2987 to inform us
that a wire is being sent.
By Telephone transactions may Call 1-800-446-2987 to make
Tele- not be used for initial purchases your purchase.
Phone. If you want to make
subsequent transactions via
telephone, please select this
service on your account
Registration Form.
Hughes Funds, Inc. wants you to be kept current regarding the status of your
account in the Fund. To assist you, the following statements and reports will
be sent to you:
Confirmation Statements After every transaction that affects your
account balance or your account registration.
Financial Reports Semi-annually -- to reduce Fund expenses,
only one copy of the Fund report will be mailed
to each taxpayer identification number even if
you have more than one account in the Fund.
Purchase By Mail
Your purchase order, if accompanied by payment, will be processed upon receipt
by Mutual Shareholder Services, the Fund's Transfer Agent. If the Transfer Agent
receives your order and payment by the close of regular trading on the Exchange
(currently 4:00 p.m. East Coast time), your shares will be purchased at the
Fund's net asset value calculated at the close of regular trading on that day.
Otherwise, your shares will be purchased at the net asset value determined as of
the close of regular trading on the next business day.
The Company does not consider the U.S. Postal Service or any other independent
delivery service to be its agent. Therefore, deposit in the mail or with such
services, or receipt at Declaration Service Company's Post Office Box, of
purchase applications or redemption requests does not constitute receipt by the
Custodian or the Fund. Do not mail letters by overnight courier to the post
office box address. Correspondence mailed by overnight courier should be sent
to the Fund at:
Mutual Shareholder Services
1301 East Ninth Street, Suite 3600
Cleveland, OH 44114
All applications to purchase shares of the Fund are subject to acceptance or
rejection by authorized officers of the Company and are not binding until
accepted. Applications will not be accepted unless they are accompanied by
payment in U.S. funds. Payment must be made by check or money order drawn on a
U.S. bank, savings & loan or credit union. The Custodian will charge a $20.00
fee against your account, in addition to any loss sustained by the Fund, for any
payment check returned to the Custodian for insufficient funds. The Company
reserves the right to refuse to accept applications under circumstances or in
amounts considered disadvantageous to shareholders. If you place an order for
Fund shares through a securities broker, and you place your order in proper form
before 4:00 p.m. East Coast time on any business day in accordance with their
procedures, your purchase will be processed at the public offering price
calculated at 4:00 p.m. on that day, if the securities broker then transmits
your order to the Transfer Agent before the end of its business day (which is
usually 5:00 p.m. East Coast time). The securities broker must send to the
Transfer Agent immediately available funds in the amount of the purchase price
within three business days for the order.
By Financial Service Organization
If you are a client of a securities broker or other financial organization, you
should note that such organizations may charge a separate fee for administrative
services in connection with investments in Fund shares and may impose account
minimums and other requirements. These fees and requirements would be in
addition to those imposed by the Fund. If you are investing through a
securities broker or other financial organization, please refer to its program
materials for any additional special provisions or conditions that may be
different from those described in this Prospectus (for example, some or all of
the services and privileges described may not be available to you). Securities
brokers and other financial organizations have the responsibility of
transmitting purchase orders and funds, and of crediting their customers'
accounts following redemptions, in a timely manner in accordance with their
customer agreements and this Prospectus.
Telephone Purchases
In order to be able to purchase shares by telephone, your account authorizing
such purchases must have been established prior to your call. Your initial
purchase of shares may not be made by telephone. Shares purchased by telephone
will be purchased at the per share net asset value determined at the close of
business on the day that the transfer agent receives payment through the
Automatic Clearing House. Call the Transfer Agent for details.
You may make purchases by telephone only if you have an account at a bank that
is a member of the Automated Clearing House. Most transfers are completed
within three business days of your call. To preserve flexibility, the Company
may revise or eliminate the ability to purchase Fund shares by phone, or may
charge a fee for such service, although the Company does not currently expect to
charge such a fee.
Mutual Shareholder Services, the Fund's transfer agent, employs certain
procedures designed to confirm that instructions communicated by telephone are
genuine. Such procedures may include, but are not limited to, requiring some
form of personal identification prior to acting upon telephonic instructions,
providing written confirmations of all such transactions, and/or tape recording
all telephonic instructions. Assuming procedures such as the above have been
followed, neither the Transfer Agent nor the Fund will be liable for any loss,
cost, or expense for acting upon telephone instructions that are believed to be
genuine. The Company shall have authority, as your agent, to redeem shares in
your account to cover any such loss. As a result of this policy, you will bear
the risk of any loss unless the Fund has failed to follow procedures such as the
above. However, if the Fund fails to follow such procedures, it may be liable
for such losses.
Wire Purchases
If you purchase Fund shares by wire, you must complete and file an Account
Registration Form with the Transfer Agent before any of the shares purchased can
be redeemed. You should contact your bank (which will need to be a commercial
bank that is a member of the Federal Reserve System) for information on sending
funds by wire, including any charges that your bank may make for these services.
Miscellaneous Purchase Information
Federal regulations require that you provide a certified taxpayer identification
number whenever you open or reopen an account. Congress has mandated that if
any shareholder fails to provide and certify to the accuracy of the
shareholder's social security number or other taxpayer identification number,
the Company will be required to withhold a percentage, currently 31%, of all
dividends, distributions and payments, including redemption proceeds, to such
shareholder as a backup withholding procedure.
For economy and convenience, share certificates will not be issued.
HOW TO SELL (REDEEM) YOUR SHARES
You may sell (redeem) your shares at any time. You may request the sale of your
shares either by mail, by telephone or by wire.
By Mail
Sale requests should be mailed via U.S. mail or overnight courier service to:
Mutual Shareholder Services
1301 East Ninth Street, Suite 3600
Cleveland, OH 44114
The selling price of the shares being redeemed will be the Fund's per share net
asset value next calculated after receipt of all required documents in Good
Order. Payment of redemption proceeds will be made no later than the third
business day after the valuation date unless otherwise expressly agreed by the
parties at the time of the transaction.
Good Order means that the request must include:
1. Your account number.
2. The number of shares to be sold (redeemed) or the dollar value of the
amount to be redeemed.
3. The signatures of all account owners exactly as they are registered on the
account.
4. Any required signature guarantees.
5. Any supporting legal documentation that is required in the case of estates,
trusts, corporations or partnerships and certain other types of accounts.
Signature Guarantees --
A signature guarantee of each owner is required to redeem shares in the
following situations, for all size transactions:
if you change the ownership on your account;
when you want the redemption proceeds sent to a different address than is
registered on the account;
if the proceeds are to be made payable to someone other than the account's
owner(s);
any redemption transmitted by federal wire transfer to your bank; and
if a change of address request has been received by the Company or Declaration
Service Company within 15 days previous to the request for redemption.
In addition, signature guarantees are required for all redemptions of $2,500 or
more from any Fund shareholder account. A redemption will not be processed
until the signature guarantee, if required, is received in Good Order.
Signature guarantees are designed to protect both you and the Fund from fraud.
To obtain a signature guarantee, you should visit a bank, trust company, member
of a national securities exchange or other broker-dealer, or other eligible
guarantor institution. (Notaries public cannot provide signature guarantees.)
Guarantees must be signed by an authorized person at one of these institutions,
and be accompanied by the words "Signature Guarantee."
By Telephone
You may redeem your shares in the Fund by calling the Transfer Agent at 1-800-
446-2987 if you elected to use telephone redemption on your account application
when you initially purchased shares. Redemption proceeds must be transmitted
directly to you or to your pre-designated account at a domestic bank. You may
not redeem by telephone if a change of address request has been received by the
Company or the Transfer Agent within 15 days previous to the request for
redemption. During periods of substantial economic or market changes,
telephone redemptions may be difficult to implement. If you are unable to
contact the Transfer Agent by telephone, shares may be redeemed by delivering
the redemption request in person or by mail. You should understand that with
the telephone redemption option, you may be giving up a measure of security that
you might otherwise have had were you to redeem your shares in writing. In
addition, interruptions in telephone service may mean that you will be unable to
effect a redemption by telephone if desired.
Shares purchased by check for which a redemption request has been received will
not be redeemed until the check or payment received for investment has cleared.
By Wire
You may request the redemption proceeds be wired to your designated bank if it
is a member bank or a correspondent of a member bank of the Federal Reserve
System. A $10 fee is charged for outgoing wires.
Redemption At The Option Of The Fund
If the value of the shares in your account falls to less than $1000, the Company
may notify you that, unless your account is increased to $1000 in value, it
will redeem all your shares and close the account by paying you the redemption
proceeds and any dividends and distributions declared and unpaid at the date of
redemption. You will have thirty days after notice to bring the account up to
$1000 before any action is taken. This minimum balance requirement does not
apply to IRAs and other tax-sheltered investment accounts. This right of
redemption shall not apply if the value of your account drops below $1000 as the
result of market action. The Company reserves this right because of the expense
to the Fund of maintaining very small accounts.
DIVIDENDS AND DISTRIBUTIONS
Dividends paid by the Fund are derived from its net investment income. Net
investment income will be distributed at least annually. The Fund's net
investment income is made up of dividends received from the stocks it holds, as
well as interest accrued and paid on any other obligations that might be held in
its portfolio.
The Fund realizes capital gains when it sells a security for more than it paid
for it. The Fund may make distributions of its net realized capital gains
(after any reductions for capital loss carry forwards), generally, once a year.
Unless you elect to have your distributions paid in cash, your distributions
will be reinvested in additional shares of the Fund.
You may change the manner in which your dividends are paid at any time by
writing to the Transfer Agent.
MANAGEMENT OF THE FUND
The business affairs of the Fund are managed under the general supervision of a
Board of Directors.
Investment Advisor
Management Agreements: The Company has entered into an Investment Advisory
Contract (the "Contract") with Hughes Investment Advisors LLC, (the "Advisor"),
741 Cox Road, Moorestown NJ 08057.
Charles J. Hughes is the president of the Advisor and is responsible for all its
investment decisions, including the day-to-day management of the Fund. Mr.
Hughes also serves as the President and as a Director of the Company. The
Advisor manages the investment of the assets of the Fund in accordance with the
Fund's investment objective, policies, and restrictions. The Advisor was formed
on December 9, 1997 and registered as an Investment Advisory Firm with the
Securities and Exchange Commission on March 13, 1998. The Advisor formerly
operated as Hughes Trading L.L.C., and developed financial futures and timing
model software for equity trading.
Mr. Hughes is the portfolio manager for the Fund. Mr. Hughes has been providing
investment advice to the Fund since its inception. From 1994 through 1997, Mr.
Hughes developed and implemented futures trading programs when the Advisor
operated as Hughes Trading, LLC. During this period, he acted as a private
investor for himself and members of his family. In addition, Mr. Hughes has
been a commercial airline pilot for American Airlines since 1988. Although Mr.
Hughes has extensive experience managing portfolios for himself and his family,
Mr. Hughes does not have any previous experience in providing investment
management services to any registered investment company.
The Advisor receives from the Fund, as compensation for its services, a fee,
accrued daily and payable monthly, at an annual rate of 0.50% of the Fund's net
assets.
Operating Services Agreement; the Company has also entered into an Operating
Services Agreement with the Advisor where the Advisor will provide, or arrange
to provide, essentially all other services needed to the Fund. These services
include transfer agent, accounting, distribution and custodial services. The
effect of the Investment Advisory Agreement and the Operating Services Agreement
is to cap the Fund's normal operating expenses. These contracts do not cover
expenses incurred by the Fund for taxes, interest, brokerage fees, legal
expenses for litigation, and other extraordinary expenses.
The Advisor receives from the Fund, as compensation for its services, a fee,
accrued daily and payable monthly, at an annual rate of 0.50% of the Fund's net
assets.
Under these agreements, the Advisor furnishes at its own expense office space to
the Company and all necessary office facilities, equipment, and personnel for
managing the assets of the Fund. The Advisor also pays all expenses of marketing
shares of the Fund, and related bookkeeping.
FEDERAL TAXES
As with any investment, you should consider the tax implications of an
investment in the Fund. The following is only a short summary of the important
tax considerations generally affecting the Fund and its shareholders. You should
consult your tax Advisor with specific reference to your own tax situation.
The Fund intends to qualify and maintain its qualification as a "regulated
investment company" under the Internal Revenue Code (hereafter the "Code"),
meaning that to the extent a fund's earnings are passed on to
shareholders as required by the Code, the Fund itself is not required to pay
federal income taxes on the earnings. Accordingly, the Fund will pay dividends
and make such distributions as are necessary to maintain its qualification as a
regulated investment company under the Code.
Before you purchase shares of the Fund, you should consider the effect of both
dividends and capital gain distributions that are expected to be declared or
that have been declared but not yet paid. When the Fund makes these payments,
its share price will be reduced by the amount of the payment, so that you will
in effect have paid full price for the shares and then received a portion of
your price back as a taxable dividend distribution.
The Fund will notify you annually as to the tax status of dividend and capital
gains distributions paid by the Fund. Such dividends and capital gains may
also be subject to state and local taxes.
You may realize a taxable gain or loss when redeeming shares of the Fund
depending on the difference in the prices at which you purchased and sold the
shares.
Because your state and local taxes may be different than the federal taxes
described above, you should see your tax Advisor regarding these taxes.
GENERAL INFORMATION
Total return for the Fund may be calculated on an average annual total return
basis or an aggregate total return basis. Average annual total return reflects
the average annual percentage change in value of an investment over the
measuring period. Aggregate total return reflects the total percentage change in
value of an investment over the measuring period. Both measures assume the
reinvestment of dividends and distributions.
Total return of the Fund may be compared to those of mutual funds with
similar investment objectives and to bond, stock or other relevant indices or to
rankings prepared by independent services or other financial or industry
publications that monitor mutual fund performance.
DISTRIBUTION FEES
The Fund has adopted a distribution plan (the "Distribution Plan"), pursuant to
which the Fund may incur shareholder servicing expenses of up to .25% per
annum of the Fund's average daily net assets on all of its share classes
The Fund has also adopted a distribution plan (the "Distribution Plan"),
pursuant to which the Fund may incur distribution expenses of up to .75% per
annum of the Fund's average daily net assets on its Class C shares. This fee is
available to broker, dealers and other persons who provide distribution and
other services to the Fund to help sell Class C shares.
The Distribution Plans provide that the Fund may finance activities which are
primarily intended to result in the sale of the Fund's shares, including but not
limited to, advertising, printing of prospectuses and reports for other than
existing shareholders, preparation and distribution of advertising materials and
sales literature, and payments to dealers and shareholder servicing agents.
You should be aware that if you hold your shares for a substantial period of
time, you may indirectly pay more than the economic equivalent of the maximum
front-end sales charge allowed by the National Association of Securities Dealers
due to the recurring nature of Distribution (12b-1) fees.
Year 2000 Risks: As with other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Advisor and the Fund's other
service providers don't properly process and calculate date-related information
and data from and after January 1, 2000. This is commonly known as the "Year
2000" or "Y2K" problem. The Advisor is taking steps to address the Y2K problem
with respect to the computer systems that it uses and to obtain assurances that
comparable steps are being taken by the Fund's other major service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any adverse impact on the Fund.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's
financial performance since its inception on July 29, 1998. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has not been audited. These Financial
Highlights, along with other information concerning the Fund are included in the
Fund's semi-annual report, which is available without charge upon request.
July 29, 1998(1)
Through
December 31, 1998
Net Asset Value-
Beginning of Period $10.00
Investment Operations:
Net Investment Income $ 0.06
Net Realized and
Unrealized Gain on
Investments $ 1.66
Totals from Investment
Operations $ 1.72
Distributions:
From Net
Investment Income $( 0.06)
From Net Realized
Capital Gains $ 0.00
Total Distributions $( 0.06)
Net Asset Value-
End of Period $11.66
Total Return 16.60%
Ratios/Supplemental Data*
Net Assets, end of period
(in 000s) $117
Ratio of Expenses to
Average Net Assets(4,5) 1.00%
Ratio of Net Investment
Income to Average Net
Assets 0.95%
Portfolio Turnover Rate 46.12%
(1) Commencement of Operations
* Annualized
See notes to financial statement contained in the Fund's Semi-Annual Report.
FOR MORE INFORMATION
Additional information about the Fund is available in the Fund's semi-annual
report to shareholders. In the Fund's semi-annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its first six months of operations.
Statement of Additional By Mail:
Information (SAI)
Hughes Funds, Inc.
The SAI contains more detailed c/o Mutual Shareholder
Services
Information on all aspects of the 1301 East Ninth Street, Suite
3600
Fund. A current SAI, dated March 29, Cleveland, OH 44114
1999, has been filed with the SEC
and is incorporated by reference By Phone: 1-800-446-2987
into (is legally a part of) this
prospectus.
To request a free copy of the SAI,
or the Fund's latest semi-annual Or you may view or obtain
these
Report, please contact the Fund. documents from the SEC.
In person: at the SEC's Public Reference Room in Washington, D.C.
By Phone: 1-800-SEC-0330
By Mail: Public Reference Section, Securities and Exchange Commission,
Washington, D.C. 20549-6009
(duplicating fee required)
On the Internet: www.sec.gov
The Hughes Value Fund
c/o Mutual Shareholder Services
1301 East Ninth Street, Suite 3600
Cleveland, OH 44114
Investment Company Act No.
811-08617
STATEMENT OF ADDITIONAL INFORMATION
Dated March 29, 1999
THE HUGHES VALUE FUND
741 Cox Road
Moorestown NJ 08057
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus of Hughes Growth and Income Fund, Inc., dated
March 29, 1999. Requests for copies of the Prospectus should be made by writing
to Hughes Funds, Inc., 741 Cox Road, Moorestown NJ 08057 or by calling 609-234-
3903.
TABLE OF CONTENTS
Hughes Funds, Inc. Fund Service Providers
Investment Policies and Restrictions Custodian
Investment Advisor Tranfer Agent
Performance Information Aministration
Purchasing and Redeeming Shares Independent Accountants
Tax Information Independent Auditors Report*
Portfolio Transactions Financial Statements
Principal Holders of Securities
* to be filed by amendment
HUGHES FUNDS, INC.
Hughes Funds, Inc (the "Company") was organized on December 15, 1997 as a
Maryland corporation, and is a mutual fund of the type known as an open-end,
diversified management investment company. It did not begin operations
until 1998 nor commence offering its shares until that time. A mutual fund
permits an investor to pool his or her assets with those of others in order to
achieve economies of scale, take advantage of professional money managers and
enjoy other advantages traditionally reserved for large investors. The
Company is authorized to issue 100,000,000 shares of .001 cent par value
common capital stock. The Company's Articles of Incorporation permit its
Board of Directors to classify any unissued shares into one or more classes of
shares. The Board has authorized the issuance of 25,000,000 shares of The
Hughes Value Fund which are offered by this prospectus. The Fund shares are
fully paid and non-assessable. They are entitled to such dividends and
distributions as may be paid with respect to the shares and shall be entitled
to such sums on liquidation of the Fund as shall be determined. Other than
these rights, they have no preference as to conversion, exchange,
dividends, retirement or other features and have no preemption rights.
Shareholder meetings will not be held unless required by Federal or State law or
in connection with an undertaking given by the Fund (See Statement of
Additional Information).
INVESTMENT POLICIES AND RESTRICTIONS
The Fund's investment objective and the manner in which the Fund pursues its
investment objective is discussed in the prospectus. The Fund's investment
limitations and restrictions are listed below:
The Fund will not:
1. To the extent of 75% of its assets (valued at time of investment), invest
more than 5% of its assets in securities of any one issuer, except in
obligations of the United States Government and its agencies and
instrumentalities;
2. Acquire securities of any one issuer that at the time of investment (a)
represent more than 10% of the voting securities of the issuer or (b) have a
value greater than 10% of the value of the outstanding securities of the issuer;
3. Invest less than 25% of its assets (valued at time of investment) in
securities of Financial Services Companies, except for temporary or defensive
purposes;
4. Borrow money except from banks for temporary or emergency purposes in amounts
not exceeding 5% of the value of the Fund's assets at the time of borrowing;
5. Underwrite the distribution of securities of other issuers, or acquire
"restricted" securities that, in the event of a resale, might be required to be
registered under the Securities Act of 1933;
6. Make margin purchases or short sales of securities;
7. Invest in companies for the purpose of management or the exercise of control;
8. Lend money (but this restriction shall not prevent the Fund from investing in
debt securities or repurchase agreements), or lend its portfolio securities.
9. Acquire or retain any security issued by a company, an officer or director of
which is an officer or director of the Company or an officer, director or other
affiliated person of the Advisor.
10. Invest in oil, gas or other mineral exploration or development programs,
although it may invest in marketable securities of companies engaged in oil, gas
or mineral exploration;
11. Purchase or sell real estate or real estate loans or real estate limited
partnerships, although it may invest in marketable securities of companies that
invest in real estate or interests in real estate.
12. Purchase warrants on securities.
13. Issue senior securities.
14. Invest in commodities, or futures and options on commodities.
15. Except for Financial Services Companies, invest more than 25% of its net
assets (valued at the time of investment) in securities of any one industry.
Restrictions 1 through 15 listed above are fundamental policies, and may be
changed only with the approval of a "majority of the outstanding voting
securities" of the Fund as defined in the Investment Company Act of 1940.
The Fund has also adopted the following restrictions that may be changed by the
Board of Directors without shareholder approval:
The Fund may not:
a. Invest more than 15% of its net assets in securities that are not readily
marketable;
b. Acquire securities of other investment companies except (a) by purchase in
the open market, where no commission or profit to a sponsor or dealer results
from such purchase other than the customary broker's commission and (b) where
acquisition results from a dividend or merger, consolidation or other
reorganization (in addition to this investment restriction, the Investment
Company Act of 1940 provides that the Fund may neither purchase more than 3%
of the voting securities of any one investment company nor invest more than
10% of the Funds total net assets (valued at time of investment) in all
investment company securities purchased by the Fund);
c. Pledge, mortgage or hypothecate its assets, except for temporary or emergency
purposes and then to an extent not greater than 5% of its total assets at
cost;
d. Invest more than 10% of the Fund's assets (valued at time of investment)
in initial margin deposits of options or futures contracts;
INVESTMENT ADVISOR
Information on the Fund's investment Advisor, Hughes Investment Advisors LLC, is
set forth in the prospectus.
The Advisor is a New Jersey Limited Liability Company. Charles J Hughes is the
President with a 51% interest in the company and his brother, Daniel J. Hughes
has a 49% interest and is a member of the company. Although Mr. Hughes has
extensive experience in managing personal investment portfolios for himself and
his family, he does not have any previous experience in providing investment
management services to any registered investment company.
The Advisory Agreement provides that the Advisor shall not be liable for any
loss suffered by the Fund or its shareholders as a consequence of any act or
omission in connection with services under the Agreement, except by reason of
the Advisor's willful misfeasance, bad faith, gross negligence, or reckless
disregard of its obligations and duties under the Advisory Agreement.
The Advisory Agreement expires on March 31, 2001, but may be continued from year
to year so long as its continuance is approved annually (a) by the vote of a
majority of the Directors of the Fund who are not "interested persons" of the
Fund or the Advisor cast in person at a meeting called for the purpose of voting
on such approval, and (b) by the Board of Directors as a whole or by the vote of
a majority (as defined in the 1940 Act) of the outstanding shares of the Fund.
The Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
DIRECTORS AND OFFICERS
The board of directors has overall responsibility for conduct of the Company's
affairs. The day-to-day operations of the Fund are managed by the Advisor
subject to the bylaws of the Company and review by the Board of Directors. The
directors of the Company, including those directors who are also officers, are
listed below:
Name, Age, Address, Position Principal Occupation For the
with Fund Last Five Years
Charles J Hughes Age 47 * Fund Advisor
741 Cox Road President Hughes Trading LLC since
Moorestown NJ 08057 February, 1996. Pilot for American
President, Treasurer & Director Airlines since 1980.
BA Degree LaSalle University
Frank G Solecki Age 52 Director of Manufacturing PCD
48 Cove Road Division of FMC Corporation, a
Moorestown NJ 08057 Chemical manufacturing firm
Secretary and Director BS Degree Penn State University
Neal K Smith Age 46 Sales Engineer for Del-Val
144 Knotty Oak Dr. Equipment, Inc., an engineering firm
Mount Laurel NJ 08054 BS Degree Grove City College
Director
* Indicates an "interested person" as defined in the Investment Company Act of
1940.
The Company was organized as a Maryland Corporation on December 15, 1997. The
table below sets forth the compensation anticipated to be paid by the
Corporation to each of the directors of the Corporation during the fiscal year
ending June 30, 1999.
Name of Director Compensation Pension Annual Total Compensation
from Corp. Benefits Paid to Director
Director
Charles J Hughes 0 0 0 0
Frank G Solecki $500 0 0 $500
Neal K Smith $500 0 0 $500
PRINCIPAL HOLDERS OF SECURITIES
As of December 31, 1998, Charles J Hughes and Daniel J. Hughes owned 50% each of
the Fund's outstanding shares. Accordingly, they are deemed to then control the
Fund.
The Company will call a meeting of shareholders for the purpose of voting upon
the question of removal of a director or directors when requested in writing to
do so by record holders of at least 10% of the Fund's outstanding common shares.
The Corporation's bylaws contain procedures for the removal of directors by its
stockholders. At any meeting of stockholders, duly called and at which a quorum
is present, the stockholders may by the affirmative vote of the holders of a
majority of the votes entitled to be cast thereon, remove any director or
directors from office and may elect a successor or successors to fill any
resulting vacancies for the unexpired terms of the removed directors.
PERFORMANCE INFORMATION
From time to time the Fund may quote total return figures. "Total Return" for a
period is the percentage change in value during the period of an investment in
Fund shares, including the value of shares acquired through reinvestment of all
dividends and capital gains distributions. "Average Annual Total Return" is the
average annual compounded rate of change in value represented by the Total
Return Percentage for the period.
Average Annual Total Return is computed as follows: P(1+T)[n] = ERV
Where: P =a hypothetical initial investment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of shares at
the end of the period
Yield. The Fund may advertise performance in terms of a 30-day yield quotation.
The 30-day yield quotation is computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on the
last day of the period, according to the following formula:
Yield = 2[(a-b/cd + 1)6 - 1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursement)
c = the average daily number of shares outstanding during the period that they
were entitled to receive dividends
d = the maximum offering price per share on the last day of the period
Income taxes are not taken into account. The Fund's performance is a function of
conditions in the securities markets, portfolio management, and operating
expenses. Although information such as that shown above is useful in reviewing
the Fund's performance and in providing some basis for comparison with other
investment alternatives, it should not be used for comparison with other
investments using different reinvestment assumptions or time periods.
In sales literature, the Fund's performance may be compared with that of market
indices and other mutual funds. In addition to the above computations, the Fund
might use comparative performance as computed in a ranking determined by Lipper
Analytical Services, Morningstar, Inc., or that of another service.
PURCHASING AND REDEEMING SHARES
Purchases and redemptions are discussed in the Fund's prospectus.
Redemptions will be made at net asset value. The Fund's net asset value is
determined on days on which the New York Stock Exchange is open for trading.
TAX INFORMATION
Taxation Of The Fund. The Fund intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code. To qualify as a
regulated investment company, the Fund must, among other things, derive at least
90% of its gross income from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock, securities,
or other income derived with respect to its business of investing in such stock
or securities.
If the Fund qualifies as a regulated investment company and distributes at least
90% of its net investment income, the Fund will not be subject to Federal income
tax on the income so distributed. However, the Fund would be subject to
corporate income tax on any undistributed income other than tax-exempt income
from municipal securities.
Taxation Of The Shareholder. Taxable distributions generally are included in a
shareholder's gross income for the taxable year in which they are received.
However, dividends declared in October, November and December and made payable
to shareholders of record in such month will be deemed to have been received on
December 31st if paid by the Fund during the following January.
Distributions by the Fund will result in a reduction in the fair market value of
the Fund's shares. Should a distribution reduce the fair market value below a
shareholder's cost basis, such distribution would be taxable to the shareholder
as ordinary income or as a long-term capital gain, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implications of
buying shares of the Fund just prior to a distribution. The price of such shares
include the amount of any forthcoming distribution so that those investors may
receive a return of investment upon distribution which will, nevertheless, be
taxable to them.
A redemption of shares is a taxable event and, accordingly, a capital gain or
loss may be recognized. Each investor should consult a tax advisor regarding
the effect of federal, state, local, and foreign taxes on an investment in the
Fund.
Dividends. A portion of the Fund's income may qualify for the dividends-received
deduction available to corporate shareholders to the extent that the Fund's
income is derived from qualifying dividends. Because the Fund may earn other
types of income, such as interest, income from securities loans, non-qualifying
dividends, and short-term capital gains, the percentage of dividends from the
Fund that qualifies for the deduction generally will be less than 100%. The Fund
will notify corporate shareholders annually of the percentage of Fund dividends
that qualifies for the dividend received deductions.
A portion of the Fund's dividends derived from certain U.S. Government
obligations may be exempt from state and local taxation. Short-term capital
gains are distributed as dividend income. The Fund will send each shareholder a
notice in January describing the tax status of dividends and capital gain
distributions for the prior year.
Capital Gain Distribution. Long-term capital gains earned by the Fund from the
sale of securities and distributed to shareholders are federally taxable as long
term capital gains, regardless of the length of time shareholders have held
their shares. If a shareholder receives a long-term capital gain distribution on
shares of the Fund, and such shares are held six months or less and are sold at
a loss, the portion of the loss equal to the amount of the long-term capital
gain distribution will be considered a long-term loss for tax purposes. Short-
term capital gains distributed by the Fund are taxable to shareholders as
dividends, not as capital gains.
PORTFOLIO TRANSACTIONS
The Fund will generally purchase and sell securities without regard to the
length of time the security has been held. Accordingly, it can be expected that
the rate of portfolio turnover may be substantial. Since investment decisions
are based on the anticipated contribution of a security to the Fund's investment
objective, the rate of portfolio turnover is not a factor when the Advisor
believes a change is in order to achieve those objectives. The Fund expects
that its annual portfolio turnover rate will not exceed 100% under normal
conditions. However, there can be no assurance that the Fund will not exceed
this rate, and the portfolio turnover rate may vary from year to year.
High portfolio turnover in any year will result in the payment by the Fund of
above-average transaction costs and could result in the payment by shareholders
of above-average amounts of taxes on realized investment gains. Distributions to
shareholders of such investment gains, to the extent they consist of short-term
capital gains, will be considered ordinary income for federal income tax
purposes.
Decisions to buy and sell securities for the Fund are made by the Advisor
subject to review by the Corporation's Board of Directors. In placing purchase
and sale orders for portfolio securities for the Fund, it is the policy of the
Advisor to seek the best execution of orders at the most favorable price. In
selecting brokers to effect portfolio transactions, the determination of what is
expected to result in the best execution at the most favorable price involves a
number of largely judgmental considerations. Among these are the Advisor's
evaluation of the broker's efficiency in executing and clearing transactions.
Over-the-counter securities are generally purchased and sold directly with
principal market makers who retain the difference in their cost in the security
and its selling price. In some instances, the Advisor feels that better prices
are available from non-principal market makers who are paid commissions
directly.
FUND SERVICE PROVIDERS
The Fund could not function without the services provided by certain companies.
With the Board's permission, the Advisor and the Fund have entered into
contracts with the following companies. All fees charged by these companies
will be paid by the Advisor.
Custodian
Fifth Third Bank, N.A., Kansas City, Missouri, holds the investments and other
assets that the Fund owns. The Custodian is responsible for receiving and paying
for securities purchased, delivering against payment securities sold, receiving
and collecting income from investments, making all payments covering expenses
of the Fund, and performing other administrative duties, all as directed by
persons authorized by the Fund. The Custodian does not exercise any supervisory
function in such matters as the purchase and sale of portfolio securities,
payment of dividends, or payment of expenses of the Fund. Portfolio
securities of the Fund are maintained in the custody of the Custodian, and
may be entered in the Federal Reserve Book Entry System, or the security
depository system of The Depository Trust Company.
Transfer, Dividend Disbursing And Accounting Services Agent
Mutual Shareholder Services provides transfer agency and dividend disbursing
services for the Fund. This means that its job is to maintain, accurately, the
account records of all shareholders in the Fund as well as to administer the
distribution of income earned as a result of investing in the Fund. Mutual
Shareholder Services also provides accounting services to the Fund including
portfolio accounting services, expense accrual and payment services, valuation
and financial reporting services, tax accounting services and compliance control
services.
Administration
Mutual Shareholder Services also acts as Administrator to the Fund pursuant to a
written agreement with the Company and the Advisor, dated March 31, 1999. The
Administrator supervises all aspects of the operations of the Fund except those
performed by the Fund's investment Advisor under the Fund's investment advisory
agreement. The Administrator is responsible for:
(a) calculating the Fund's net asset value
(b) preparing and maintaining the books and accounts specified in Rule 31a-1
and 31a-2 of the Investment Company Act of 1940
(c) preparing financial statements contained in reports to stockholders of the
Fund
(d) preparing the Fund's federal and state tax returns
(e) preparing reports and filings with the Securities and Exchange Commission
(f) preparing filings with state Blue Sky authorities
(g) maintaining the Fund's financial accounts and records
For the services to be rendered as Administrator, The Advisor shall pay mutual
Shareholder Services an annual fee, paid monthly, based on the average net
assets of the Fund, as determined by valuations made as of the close of each
business day of the month.
__________________________________________
PRINCIPAL UNDERWRITER.
The Fund has not yet retained a principal underwriter.
INDEPENDENT ACCOUNTANTS
DeAngelis & Higgins LLC, 39 North Main Street, Cranbury NJ 08512 has been
selected as the independent accountants for the Fund. As such, DeAngelis &
Higgins LLC performs audits of the Fund's financial statements.
FINANCIAL STATEMENTS
The Hughes Value Fund unaudited financial statement as of December 31,1998
appear in the report which is attached to this Statement of Additional
Information.
HUGHES VALUE FUND
741 Cox Road
Moorestown NJ 08057
January 7, 1999
Dear Shareholder:
I am pleased to present the first semi-annual report (unaudited) of the Hughes
Value fund for the period July 29, 1998 through December 31, 1998.
The Hughes Value Fund's net asset per share at inception on July 29, 1998 was
$10.00 as compared to $11.66 on December 31, 1998. After adjusting for dividend
payments of $0.06 per share, the Fund registered a return of 16.6% during
the period.
Sincerely,
/s/ Charles J Hughes
President
Schedule of Investments (Unaudited)
December 31, 1998
Shares/Principal Amount Market Value % of Assets
Cigarettes
96 Philip Morris Companies, Inc. 5,136 4.38%
Computer Networks
68 Cisco Systems, Inc.*B36 6,311 5.39%
Department Stores
66 Wal-Mart Stores, Inc. 5,375 4.59%
Eating and Drinking Places
70 McDonalds Corporation 5,377 4.59%
Electric Housewares and Fans
68 General Electric Co. 6,936 5.92%
Federal and Federally Sponsored
Credit Agencies
76 Fedl National Mortgage Assoc. 5,624 4.80%
Fire, Marine and Casualty Insurance
140 Citicorp 6,956 5.94%
Life Insurance
80 Jeferson Pilot 6,000 5.12%
Lumber and Other Building
Materials Dealers
80 Home Depot, Inc. 4,895 4.18%
Medical, Dental, and Hospital
Equipment and Supplies
58 Johnson and Johnson 4,865 4.15%
Nondeposit Trust Facilities
56 Morgan (J.P.) & Co., Inc. 5,883 5.02%
Paint, Glass and Wallpaper Stores
216 Sherwin Williams Co. Ohio 6,345 5.42%
Perfumes, Cosmetics and Other
Toilet Preparations
52 Procter & Gamble Co. 4,748 4.05%
Petroleum Refining
64 Exxon Corp. 4,680 3.99%
Pharmaceutical Preparations
34 Merck & Co., Inc. 5,015
86 Schering-Plough Corp. 4,752
9,767 8.34%
Prepackaged Software
44 Microsoft Corp.* 6,102 5.21%
Semiconductors and Related Devices
50 Intel Corp. 5,928 5.06%
State Commercial Banks
100 Wilmington Trust 6,163 5.26%
Telephone Communications,
Except Radiotelephone
86 Bell Atlantic Corp. 4,558 3.89%
Telephone and Telegraph Apparatus
46 Lucent 5,057 4.32%
Cash and Equivalents
309 Fountain Square Treasury 309 0.26%
Total Investments 117,015 99.86%
Other Assets Less Liabilities 159 0.14%
Net Assets - Equivalent to $11.66
per share on 117,174 100%
*Non-income producing securities. The accompanying notes are an integral
part of the financial statements.
STATEMENT OF ASSETS AND LIABILITIES
Assets:
Investment Securities at Market Value
(Identified Cost - 101,829) $117,015
Cash -
Receivables:
Dividends and Interest 133
Total Assets 117,148
Liabilities
Payables:
Investment Securities Purchased -
Accured Expenses -
Total Liabilities -
Net Assets 117,148
Net Assets Consist of:
Capital Paid In 100,552
Undistributed Net Investment Income -
Accumulated realized Gain (Loss) on
Investments - Net 1,410
Unrealized Appreciation in Value
of Investments Based on Identified Cost - Net 15,186
Net Assets for 10,047 Shares Outstanding 117,148
Net Asset Value and Redemption Price
Per Share ($117,148/10,047 shares) 11.66
Offering Price Per Share 11.66
STATEMENT OF OPERATIONS
July 29, 1998 to December 31, 1998
Investment Income:
Dividends 102
Interest 450
Total Investment Income 552
Expenses
Management Fees (Note 2) 282
Total Expenses 282
Reimbursed Fees (282)
Total Expenses after Reimbursements -
Net Investment Income 552
Realized and Unrealized Gain (Loss)
on Investments:
Realized Gain (Loss) on Investments 1,410
Distribution of Realized Captial Gains
from other Investment Companies -
Unrealized Gain (Loss) from Appreciation
(Depreciation) on Investments 15,186
Net Realized and Unrealized Gain (Loss)
on Investments 16,596
Net Increase (Decrease) in Net Assets
from Operations 17,148
STATEMENT OF CHANGES IN NET ASSETS
7/29/98 to 12/31/98
From Operations:
Net Investment Income 552
Net Realized Gain (Loss) on Investments 1,410
Net Unrealized Appreciation (Depreciation) 15,186
Increase (Decrease) in Net Assets from Operations 17,148
From Distributions to Shareholders
Net Investment Income (552)
Net Realized Gain (Loss) from Security
Transactions 0
Net Increase (Decrease) from Distributions (552)
From Capital Share Transactions:
Proceeds From Sale of 10,000 Shares 100,000
Net Asset Value of 47 Shares Issued on
Reinvestment of Dividends 552
Cost of 0 Shares Redeemed 0
100,552
Net Increase in Net Assets 117,148
Net Assets at Beginning of Period
(inc. undistributed net investment income of $0) 0
Net Assets at End of Period (inc. undistributed
net investment income of $0) 117,148
FINANCIAL HIGHLIGHTS
Selected data for a share of common stock outstanding
throughout the period: 7/29/98 to 12/31/98
Net Asset Value -
Beginning of Period 10.00
Net Investment Income 0.06
Net Gains or Losses on Securities
(realized and unrealized) 1.66
Total from Investment Operations 1.72
Dividends
(from net investment income) (0.06)
Distributions (from capital gains) 0.00
Return of Capital 0.00
Total Distributions (0.06)
Net Asset Value -
End of Period 11.66
Total Return 16.60%
Ratios/Supplemental Data
Net Assets - End of Period (Thousands) 117
Before reimbursements
Ratio of Expenses to Average Net Assets* 1.00%
Ratio of Net Income to Average Net Assets* 0.96%
After reimbursements
Ratio of Expenses to Average Net Assets* 0.00%
Ratio of Net Income to Average Net Assets* 1.96%
Portfolio Turnover Rate 46.12%
Average commission per share 0.23270
*Annualized
The accompanying notes are an integral part of the financial statements.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1.) SIGNIFICANT ACCOUNTING POLICIES
The Fund is an open-end management investment company, organized as a
Maryland Corporation in December 1997. The fund is a diversified mutual
fund whose primary investment objective is growth of capital. The Fund
will seek to achieve its objective by investing primarily in the securities
of companies whose stock is traded on the New York Stock Exchange ("NYSE"),
the American Stock Exchange ("ASE") and the NASDAQ over-the-counter market.
There can be no assurance that the Fund's objective will be achieved.
Significant accounting policies of the Fund are presented below:
SECURITY VALUATION:
The Fund intends to invest in a wide variety of equity and debt securities.
The investments insecurities are carried at market value. The market
quotation used for common stocks, including those listed on the NASDAQ
National Market system, is the last sale price on the date on which the
valuation is made or, in the absence of sales, at the closing bid price.
Over-the-counter securities will be valued on the basis of the bid price
at the close of each business day. Short-term investments are valued at
amortized cost, which approximates market. Securities for which market
quotations are not readily available will be valued at fair value as
determined in good faith pursuant to procedures established by the Board
of Directors.
SECURITY TRANSACTION TIMING
Security transactions are recorded on the dates transactions are entered
into (the trade dates). Dividend income and distributions to shareholders
are recorded on the ex-dividend date. Interest income is recorded as
earned. The Fund uses the identified cost basis in computing gain or loss
on sale of investment securities. Discounts and premiums on securities
purchased are amortized over the life of the respective securities.
INCOME TAXES:
It is the Fund's policy to distribute annually, prior to the end of the
calendar year, dividends sufficient to satisfy excise tax requirements
of the Internal Revenue Service. This Internal Revenue Service requirement
may cause an excess of distributions over the book year-end accumulated
income. In addition, it is the Fund's policy to distribute annually, after
the end of the fiscal year, any remaining net investment income and net
realized capital gains.
ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2.)INVESTMENT ADVISORY AGREEMENT
The Fund has entered into an investment advisory and administration
agreement with Hughes Investment Advisors LLC. The Investment Advisor
receives from the Fund as compensation for its services an annual fee
of 1.0% on the Fund's net assets. Hughes Investment Advisors LLC
receives from the Fund as compensation for its administrative services
an annual fee of 0.1% of the fund's net assets. Hughes Investment
Advisors LLC has agreed to be responsible for payment of all operation
expenses of the Fund except for brokerage and commission expenses, and
any extraordinary and non-reccuring expenses. From time to time, Hughes
Investment Advisors LLC may waive some or all of the fees. During the
period ending December 31, 1998 all management and administrative fees
have been waived.
3.) RELATED PARTY TRANSACTIONS
Certain owners of Hughes Investment Advisors LLC are also owners and/or
directors of the Hughes Value Fund. These individuals may receive benefits
from any management and or administration fees paid to the Advisor.
4.) CAPITAL STOCK AND DISTRIBUTION
At December 31, 1998 an indefinite number of shares of capital stock
($.10 par value) were authorized, and paid-in capital amounted to
$100,552. Transactions in common stock were are follows:
Shares sold 10,047
Shares issued to shareholders in
reinvestment of dividends 47
Shares redeemed 0
Net increase 10,047
Shares Outstanding:
Beginning of Period 0
End of Period 10,047
5.) PURCHASES AND SALES OF SECURITIES
During the period from inception to December 31, 1998, purchases and
sales of investment securities other than U.S. Government obligations
and short-term investments aggregated $148,029 and $47,920 respectively.
Purchases and sales of U.S. Government obligations aggregated $0 and $0
respectively.
6.) FINANCIAL INSTRUMENTS DISCLOSURE
There are no reportable financial instruments that have any off-balance
sheet risk as of December 31, 1998.
7.) SECURITY TRANSACTIONS
For Federal income tax purposes, the cost of investments owned at December 31,
1998 was the same as identified cost.
At December 31, 1998, the compensation of unrealized appreciation (the
excess of value over tax cost) and depreciation (the excess of tax cost
over value) was as follows:
Appreciation (Depreciation) Net Appreciation (Depreciation)
15,362 (176) 15,186
